Bridging the gap with export finance solutions when financing is in short supply due to increased needs, geopolitical tensions and macro uncertainty.
From growing urgency around the climate crisis, to shifts in geopolitics and national security concerns, recent years have seen new opportunities, and challenges, arise for key players in the export finance industry.
What are the key drivers of change? How is the industry addressing the energy transition and growing ESG concerns? And how is the role of Export Credit Agencies and Development Finance Institutions evolving?
Watch the video to find out more:
How has export finance evolved in recent years?
We have seen significant shifts in the industry. In a globally interconnected world, changes in the macroeconomic and geopolitical landscapes have had a ripple effect, prompting businesses, and governments to think differently about how they operate, and interact. We’ve also seen huge advances in industrial strategies, new technologies, as well as a growing sense of urgency around the planet and future generations, around climate change and more broadly around ESG topics.
Since 2020, the pandemic acted, in many ways, as an accelerator for these trends.
With Export Credit Agencies (ECAs) and Development Finance Institutes (DFIs), we had already started to see a change in focus after the global financial crisis more than a decade ago. While the role of ECAs was traditionally targeting promoting job creation and exports, with the majority of financing earmarked towards emerging markets, we saw governments start to re-gear towards the notion of strategic support. This jurisdictional reweighting of funds was spurred on further by the pandemic and subsequent geopolitical shifts, leading to the emergence of new supply chain strategies, to a focus on security of supply, and more broadly the reshaping of, and disruptions to, global trade flows.
How has the growing urgency around the energy transition impacted the export finance industry?
Sustainability is certainly a big theme. COP26 in 2021 saw huge momentum gather from all corners of society, and a sense of urgency around the energy transition that continues to gather pace. In hindsight, the 2021 International Chamber of Commerce (ICC) report on sustainability was a further “line in the sand.”
This report is seen as a moment of truth in the repositioning of the export finance industry and its role in society. ECAs are now much more aligned with current governmental policy on energy transition and on climate change, at the national, as well as the regional level; and the new OECD guidelines published this summer mirror and confirm this shift.
Speaking at the regional level, the EUs New Green Deal places a particular emphasis on the green and digital transitions, enhancing resilience and strengthening strategic value chains through support to activities of strategic importance to the EU.
As an illustration, the roll out of a 765 km long electricity interconnector between Denmark and the UK, the so-called Viking Link, is a case in hand, and we are lending much more to developed markets today than we did in the past. We continue to work on major projects delivering on the transition with our expert colleagues in BNP Paribas’ dedicated Low Carbon Transition Group.
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Viking Link Interconnector
- Connecting the UK and Denmark’s electricity grids
- Delivering renewable electricity to 1.4 million households
- US$271 million in corporate multi-ECA financing
What has the impact been on client needs and expectations?
With ECAs no longer restricted to developing markets, and growing concerns around sovereignty and energy security, we’ve seen an increase in strategic financing towards projects aimed at securing domestic supply chains. These often have a focus on the low carbon and green transitions, given the importance of those endeavours on national agendas.
For example, alongside Korean and German ECAs, we arranged a US$2 billion green loan to the Korean industrial SK On to build a 30GWH electric vehicle (EV) battery plant. The plant will secure a constant supply of EV batteries to Volkswagen and Ford’s European manufacturing facilities.
As the largest multi-ECA transaction ever achieved by a Korean sponsor, the role, the anchor role of a German ECA was a clear signal as to the importance of the project for the German economy.
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Securing global supply chains with SK On
- US$2 billion ECA-backed green loan
- Backed by K-Sure and KEXIM (Korea), Euler Hermes (Germany) and private lenders
- Largest multi-ECA transaction ever achieved by a Korean sponsor
We also recently worked with Swedish company Northvolt on the financing package for Europe’s first gigafactory, powered by renewable energy, to produce the world’s greenest batteries. This included backing from the European Investment Bank as well as ECAs from Europe and Asia, once again promoting supply chain security in Europe, in a sector so critical to the energy transition. Needless to say, the project was a real game-changer.
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Delivering on the future of energy with Northvolt
- Europe’s first gigafactory for batteries
- €1 billion in limited recourse financing
- Financing from policy-driven institutions, export credit agencies and commercial banks
How is BNP Paribas supporting its clients in a changing landscape?
Our ambition, and responsibility, is, first and foremost, to keep ahead of the curve in this fast-changing landscape and provide our clients with well-thought, co-created and tailored solutions to meet their current and new needs. Export credit agencies are innovating, our clients are innovating, and so are we.
For example, we recently supported Spanish utility company Iberdrola on a €500 million syndicated green loan to finance critical renewable wind and photovoltaic projects. Spanish export credit agency Cesce provided the credit insurance policy under its new investment policy.
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Delivering on the UN SDGs with Iberdrola
- €500 million syndicated green loan
- Financing renewable wind and photovoltaic projects, battery, and transmission grid projects
- Delivers on SDG number 7 – Affordable and Clean Energy – and SDG number 13 – Climate Action
These financing examples clearly demonstrate how the role of export credit agencies is evolving, not only providing traditional support like working capital and eligibility-based capital goods credit insurance, but also doubling down on the financing of bigger, international investments.
How could ECAs support innovation?
Generally higher rates and events in the banking industry, have had an impact on the availability of private capital.
Offering private capital alongside with public guarantees, is an increasingly attractive proposal, particularly for those looking to scale.
The interesting angle here is how we devise solutions that address the capital needs of innovative companies. This means moving from the initial equity and like raisings to medium and long-term senior debt financing with riskier profiles.
The involvement of public balance sheets as a catalyst is critical in this regard. This is for the example the case in the textile related circular economy investments.
What’s next for the export finance industry?
The energy transition will continue to stay high on agendas, as we look ahead to 2030.
The 2021 International Chamber of Commerce whitepaper is still an important reference document.
While international cooperation and governance will continue to be key drivers, national and regional security will remain top of the agenda; whether it’s securing energy, water, or key infrastructure. And we are seeing a huge level of engagement on this from ECAs and our corporate clients, as well an enhanced engagement by DFIs on a standalone basis or in partnerships.
Working with the World Bank (IBRD) and the African Trade Insurance, on the financing of water systems in fast urbanising centres in sub-Saharan Africa, we are helping secure the delivery of potable water to 2 million inhabitants.
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Securing basic needs in fast growing urban centres
- US$910 million in sovereign financing
- Delivering potable water with the support of the World Bank
And in the more immediate future?
Personally, I remain very confident that demand will stay strong and grow. The needs for capital investments, new and sustained, are just massive, particularly those related to the adaptation of the economies to the new landscape to ensure an accelerated transition towards net zero sectors.
Those are real economy needs and meeting those corresponding ambitions requires a combination of public support, bilateral and multilateral agencies as a catalyst to private sector involvement. This builds a strong conviction that the playground of Investment and Export Finance is extremely rich, with investors, sovereigns, corporates, financial institutions, ECAs and DFIs working hand in hand.
About Yasser Henda
Yasser Henda joined Paribas in 1995, following a career with the World Bank in Washington D.C., in the North-Africa Private Sector and Infrastructure division.
After three years within the Bank’s Export Finance division for Africa & Middle East, Yasser joined the Energy Project Finance Group, where he played a prominent role in leading high profile arranging and advisory mandates in the Europe, Middle East and African regions.
In September 2004, Yasser was appointed Head of Export Finance for Africa & Middle East until December 2008. He was then appointed Deputy Global Head of Export Finance and Global Head of Regional Development & Origination. Since 2013, Yasser is Global Head of Export Finance.
Yasser is currently member of the ICC Export Finance Group and former member of AFD “Agence Française de Développement” “Comité des Etats Etrangers”.
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